The Mexican peso traded around 17.3 per USD in June, following the Federal Reserve’s latest policy announcement. The move largely reflected the hawkish tone of the FOMC’s updated economic projections. At its first meeting under Chair Kevin Warsh, the Fed left interest rates unchanged, but the dot plot indicated that at least nine members anticipate rate hikes this year. Markets are now increasingly pricing in a 25-basis-point increase before the end of 2026.
Given the close connection between Fed policy and Banxico, a more hawkish Fed stance could narrow the interest-rate differential after Mexico’s central bank signaled a pause in its easing cycle. This has weighed on the peso by diminishing the attractiveness of carry trades.
On the macroeconomic front, recent data showed that Mexico’s economy contracted 0.6% quarter-on-quarter in the first quarter, while growing only 0.2% year-on-year. Inflation also slowed more than expected in the first half of May, although it remained above the central bank’s target, with annual CPI easing to 4.1%.